As States Cut Aid, Localities Learn to Do Less With Less

You can get accustomed to hard times, and over the last few years Ohio's towns and cities learned to scrape by. Faced with the long-term decay of Rust Belt manufacturing and the financial travails of homeowners, banks and businesses of all sorts, they watched their tax revenues shrink and did their best to adjust. They deferred road maintenance. They laid off employees and delayed new hires. They reorganized departments, merged positions, and generally looked for any means of saving a few dollars.

Then, this past summer, the state decided to step in. Only not with a helping hand.

"Local governments need to change the way they do business," Republican Governor John Kasich announced. And in the budget that took effect July 1, he and the GOP-controlled legislature made sure that if towns, cities and counties hadn't already changed their ways during the Great Recession, they would have no choice from here on out.

The state's leaders cut what is known as the Local Government Fund — a Depression-era vehicle through which the state sends a portion of sales and income taxes back to the communities that provide them — along with two other funds local governments relied on heavily. In the case of the Local Government Fund, a quarter of the $665 million handed out last fiscal year will remain in Columbus this fiscal year; next year it will be half. That move is expected to save the fiscally strapped state some $400 to $500 million over the biennium.

The state's gain, though, is local governments' loss. In the words of Tim Riordan, the city manager of Dayton, "We took it on the chin."

At least local government aid in Ohio merely got lopped in half. In Nebraska, Republican Governor Dave Heineman and the legislature erased state aid to cities and counties entirely. That move, which helped the state close its budget gap to the tune of $44 million over two years, blew a $3.3 million hole in Omaha's municipal budget this year and cost Lincoln $1.8 million — not devastating for Lincoln, which has a $140 million general fund, but part of an overall revenue decline that has forced it to raise taxes and fees.

Of course, even cities and towns in Nebraska might look with compassion on their counterparts in Michigan. Since 2000, that state has cut almost $5 billion in spending that used to go to local units of government. There, too, cities have cut back on services, laid off workers, put off hiring, merged departments and positions, and renegotiated labor contracts. But now, in a state where local governments have long had only limited means of raising revenue, the GOP-led legislature is considering repealing the personal property tax, about 80 percent of which goes to local governments and the rest to school districts. This move could cost Detroit some $51 million, and other cities and towns anywhere from 17 to 57 percent of their revenues. "I don't think there's a good sense in Lansing for the impact of what they're doing to local government," says Gretchen Driskell, the mayor of Saline, a town of about 9,000, south of Ann Arbor. "We're getting by, but I just don't know how much longer we can go on."

Plenty of other states this year, including Delaware, Maryland, New Hampshire, New Jersey, New York, Virginia, Wisconsin and Wyoming, cut direct state aid, revenue sharing, or funds for specific local services. That's on top of big local-aid cuts in other states over the past few years. "Over the last three or four decades, every time there's been a recession and states have made cuts, those aid programs have taken the hit," says Chris Hoene, director of the Center on Research and Innovation at the National League of Cities. "Often they were replaced or backfilled, but then, over time and with the next recession, that reimbursement piece has gotten yanked."

Little to hold onto

There is only so much yanking you can do, though, before there's little left to hold onto. So after three years of national economic turmoil and budgetary struggle at every level of government, states and the counties, cities and towns they govern are increasingly at odds over the most basic of public issues: money.

It may not quite be every level of government for itself, but many states are showing far less willingness to share revenues, even revenues that local governments consider theirs. They are forcing localities to streamline by limiting their ability to raise money, as with legislatively mandated property-tax caps in New York, New Jersey and Indiana, or Nebraska's moves to keep Omaha from taxing the vehicles of suburban commuters and restricting cities' ability to tax telecommunications. States are setting out to reshuffle responsibilities up and down the governmental ladder — along with the funds that go with them — as California Governor Jerry Brown decided to do in this year's budget. They are forcing local governments all over the country to reconsider long-established ways of doing business. And they are compelling local officials to rethink their relationship with state government.

The result is that the chilly climate in which states have been operating fiscally is carrying over into state-local relations. "Obviously, municipalities are on their own now," says Lynn Rex, executive director of the League of Nebraska Municipalities, in a sentiment echoed by colleagues elsewhere. "There's not going to be the kind of partnership that people thought was there."

This growing fiscal tension carries risks not just for communities that are struggling to provide basic services, but for states themselves. "Cities and the surrounding urban and suburban areas that constitute metropolitan areas are quite simply the anchors and centers of state economies," says Mark Muro, a senior fellow in the Metropolitan Policy Program at the Brookings Institution. "They aren't just 'important' to states' economies, they are the states' economies. Optimizing their functioning should be a matter of massive importance to statehouses."

This is not to say that the states where the most notable cuts have taken place this year are entirely dismissing localities' needs. Legislators in Ohio, for instance, created a $45 million "Local Government Innovation Program" aimed at encouraging local governments to pursue cost-saving efficiencies. It came with scanty operating instructions, however, and doesn't take effect until next year. "We're in limbo," says Jon Honeck, director of public policy and advocacy at the Center for Community Solutions, a Cleveland-based research and planning organization for surrounding Cuyahoga County. "There's a lot of rhetoric about reaching greater efficiencies and collaboration, but that in itself is not going to keep cities from service cuts."

Republican-led efforts to reduce the bargaining power of public workers as a means of cutting costs have also produced uncertain results. In March, Ohio restricted collective bargaining rights for public workers, including police officers and firefighters, a move that might allow local governments to reduce their single biggest budgetary outlay. An effort to repeal the law, however, has qualified for the November ballot, and the law is on hold until voters decide one way or the other.

And in Nebraska, legislators balanced their fund-cutting with a complex reform law changing how the state's unique Commission on Industrial Relations can set public-sector wage rates. While the move won praise from local officials — "It's taken us 30 years to get that bill passed," says the municipal league's Lynn Rex — it sidestepped one key issue. "In my mind," says Chris Beutler, the mayor of Lincoln, "the most important thing was winning the ability to compare our wages to private-sector wages in local economies." At the last minute, that provision was dropped; wages will still be pegged to public-sector wages in "comparable" communities, which might include larger out-of-state jurisdictions, and so cost Nebraska cities more than they consider reasonable.

Police layoffs

The immediate reality for cash-strapped towns and cities, however, is that states have been cutting their funds, and they've had to react quickly. Cleveland has already laid off 123 police officers — and 321 full-time employees overall — as a result of this year's state budget. "We're strapped," says Sharon Dumas, the city's finance director. "So as a result of the loss of this income, we did have to go to layoffs."

Farther south, in Reynoldsburg, Ohio, a blue-collar suburb of Columbus, the city is hoping that citizens in November opt to boost the local-option income tax. If they don't, says Mayor Brad McCloud, the city will have to find the $1.3 million it is losing from the state some other way. "It'll be like closing down our parks department and maybe laying off 10 percent of our police force," he says. Dayton, which is losing $9 million in state money, is now getting by on a budget that is smaller than it was in 1995 and with a workforce that is 60 percent of what it was a decade ago. It has left its parks unstaffed and stopped paying overtime for fire crews, is trying to convince the city's hospitals to take over ambulance service and is proposing special assessments on such "amenities" as streetlights. "We're taking on things I'd rather not take on in terms of political battles," says City Manager Tim Riordan, "but we've got no choice."

Where cities are in a position to raise revenue, they're trying to do so. Lincoln, Nebraska, spent the last few years cutting its programming in parks and recreation, aging services, libraries and public works, but none of that was enough. This year, it is increasing its property tax and imposing a "wheel tax" on every vehicle in the city in order to begin catching up on years of deferred road maintenance. "We bit the bullet and made things fiscally right," says Beutler. "At least, for this moment in time."

Perhaps the best indication of what lies in store comes from Michigan, where towns and cities have had years to get accustomed to state budget cuts. "There's lots of bad parts of being in a recession seven or eight years ahead of everyone else," says Dan Gilmartin, executive director of the Michigan Municipal League, "but you do get ahead and start reinventing."

So, for instance, the city of Troy, an upscale suburb of Detroit, has taken $16 million in cuts from the state over the past decade, which amounts to two-thirds of its police budget and more than its entire road maintenance budget. After much public discussion, the town's community center raised its fees to become self-supporting; other services were handed off to volunteer organizations; and its library just won a ballot measure to raise taxes to fund its activities. Robin Beltramini, Troy's mayor, expects this sort of public debate over which services ought to remain part of the city's portfolio — and which can be picked up by nonprofits, businesses, and others — to continue.

"Our citizens expect us to have a police department that catches purse snatchers at the mall and catches speeders through our subdivisions. Our fire department still has to have trucks and training. We have hundreds of miles of roads that must be repaired and maintained," she says. "When you try to keep those services as whole as possible but you've lost millions in state shared revenue and your property values have dropped, you simply can't keep doing everything you did."

Additional reporting for this article was contributed by Victoria Kleger.

Rob Gurwitt is a freelance writer based in Norwich, Vermont. He can be reached atrobg@valley.net

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